Month: October 2019

S&P futures reversed overnight gains, and European stocks slumped on Thursday after a Bloomberg report that China doubts the possibility of a long-term trade deal with President Donald Trump. And one day after they all slumped following the Fed’s latest rate cut which pushed stocks to all time highs, safe haven assets including bonds, gold and the yen all advanced.

US index futures all reversed sharply, wiping out most of the post-FOMC gains, and Europe’s Stoxx 600 turned lower, with basic resources, energy and autos leading European indices into the red after Bloomberg reported Chinese officials have warned they won’t budge on the thorniest trade issues and remain concerned about “Trump’s impulsive nature and the risk he may back out of even the limited deal both sides say they want to sign in the coming weeks”, a report which frankly said nothing new, but seemed almost a hit piece designed to kill any upward algo momentum. 

Amusingly, just an hour earlier, Reuters reported that Beijing could remove extra tariffs imposed since last year on U.S. farm products to ease the way for importers to buy up to $50 billion worth, rather than direct them to buy specific amounts, the head of a government-backed trade association said, in what appeared to be dueling narratives between Reuters and Bloomberg.  Also prior to the Bloomberg report, China’s MOFCOM said trade negotiations are progressing well and that the teams maintain close communication, while the sides will proceed according to previous plan and lead US and China negotiators are to hold a phone call on Friday

Of course, all it takes is one optimistic tweet from Trump to reverse the dour early mood.

Earlier, world stocks edged to their highest in 20 months on Thursday after the Federal Reserve cut rates even as it signaled it would hold back from further reductions, sending bond yields and the dollar down, while solid earnings results from Facebook and Apple helped boost tech stocks.

Asian stocks outside Japan had earlier forged ahead on the cuts, following Wall Street’s advance to fresh record highs, climbing 0.3% to touch their highest since Jul. 30. Asian stocks advanced, led by communications firms, after the Federal Reserve cut interest rates for the third time this year and the dollar weakened. Fed officials signaled a pause in further rate cuts unless the economic outlook changes materially. Hong Kong led gains in the region, while Indonesia retreated. Japan’s Topix edged up 0.1%, supported by Sony and SoftBank Group, after the Bank of Japan strengthened the wording on its policy pledge, flagging the possibility that interest rates could go lower. The Shanghai Composite Index fell 0.4%, with Industrial & Commercial Bank of China and PetroChina among the biggest drags.

Early on Thursday, China’s National Bureau of Statistics reported that in October, China’s manufacturing PMI slumped deeper into contraction, dropping from 49.8 to 49.3, not only below the 49.8 consensus estimate, but also below the lowest sellside estimate (the range was 49.5-50.5). Worse, the Non-manufacturing PMI, which many had ignored for months because it was so deeply into expansionary territory, tumbled sharply, and after its biggest drop in almost a year, dipped to 52.8 from 53.6, and is now just shy of the lowest print since the financial crisis.

Emerging stocks rose 0.2% to their highest in three months, and were on course for a second straight month of healthy gains. India’s Sensex climbed 0.7%, as Infosys and State Bank of India offered strong support. Yes Bank soared as much as 39% after saying it got a $1.2 billion binding offer from a global investor for its share sale.

On Wednesday, Fed Chair Jerome Powell gave an upbeat assessment of the U.S. economy and geopolitical risks from Washington’s trade war with China to Brexit had eased. Yet many investors held on to expectations that further rate cuts could come should the U.S. economy turn sour next year, and on Thursday money moved to riskier assets.

“Markets are discounting some more easing, but not very aggressively at this stage,” said Klaus Baader, chief global economist at Societe Generale. “We think the U.S. is going slide into recession, and that is likely some time around the middle of 2020. If the economy slides into recession, we think the Fed will continue to cut interest rates aggressively – even though this isn’t mainstream thinking.”

The Fed dropped a previous reference in its policy statement that it “will act as appropriate” to sustain the economic expansion – language that was considered a sign for future cuts. Even so, market players said they thought the Fed could act should geopolitical risks flare up.

After the Fed cuts, the S&P 500 index closed at another record high on Wednesday, though some in the market voiced concern that central banks across the world lack room to respond to any economic downturn. “I’d be worried that there isn’t enough in the tool box,” said Neil Wilson, chief market analyst at Markets.com. “The Fed is in a better state than most, but I’m not sure what Europe and Japan can do.”

Just a few hours after the Fed cut, the Bank of Japan kept policy steady on Thursday, but introduced new forward guidance – a pledge central banks make on future policy – that commits more strongly to perpetuating ultra-low interest rates. The BoJ noted that this is to pay close attention to chance momentum for hitting price target will be lost although it added there has been no further increase in chance of momentum for hitting price target will be lost but must continue to pay attention to the possibility. Furthermore, BoJ stated Japan’s economy is likely to grow below potential temporarily but will likely continue expanding as a trend, while it noted that risks are skewed to the downside for the economy and it lowered all growth and inflation forecasts in its Outlook Report.

In geopolitics, North Korea has reportedly fired two projectiles, according to the South Korean Military and the Japanese Coast Guard note that the missile appers to have landed outside of their EEZ. The projectiles flew 370km with a maximum altitude 90km before sinking into the sea.

The dollar slipped against a basket of six major currencies slipped 0.4% to 97.29, its lowest in a week, after rising a day earlier. The Bloomberg Dollar Spot Index was set to lose 1.9% this month – its worst performance in 21 months – and fell a fourth day after Fed Chairman Powell said the bar to raising interest rates remained high. The greenback stayed lower on news of China’s skepticism to reach a longer-term trade deal with the U.S. while Treasuries advanced. The yen saw the biggest gains against the dollar on haven demand as risk sentiment soured; the Swiss franc also climbed. The pound rose a second day as the Dec. 12 election campaign began.

In rates, as investors switched to a risk-off mood, the yield on 10-year U.S. bonds fell four basis points to 1.74%.  Euro zone bond yields also fell: German government bond yields, seen as a benchmark, were set for their biggest fall this month.

In commodity markets, oil prices rose as investors banked on further economic stimulus by China after weak PMI data. Brent crude futures were last up 0.6%, or 39 cents, at $60.99 a barrel.

To the day ahead, focus will be on the September PCE report along with personal income and spending readings. The Q3 ECI, latest jobless claims data and Chicago PMI are also due. Elsewhere, the ECB’s Guindos is due to speak while earnings releases include Royal Dutch Shell, Sanofi, BNP Paribas and Kraft Heinz.

Top Overnight News from Bloomberg:

• Chinese officials are casting doubts about reaching a comprehensive long-term trade deal with the U.S. even as the two sides get close to signing a “phase one” agreement. In private conversations, Chinese officials have warned they won’t budge on the thorniest issues, according to people familiar with the matter. They remain concerned Trump could back out of even a limited deal
• In a press conference after the Fed cut interest rates for the third time in 2019, Federal Reserve Chairman Jerome Powell repeatedly said that the stance of policy was now “appropriate” to keep the economy growing moderately, the jobs market strong and inflation near the central bank’s 2% goal. Bond market signals doubt Fed has shut door on further rate cuts
• Jeremy Corbyn will blast what he calls the U.K.’s “corrupt system” as he kick-starts Labour’s campaign to overthrow Prime Minister Boris Johnson’s Conservatives in the Dec. 12 general election. The opposition Labour Party leader will deliver his first speech of the campaign with an attack on billionaires. He’ll also reiterate Labour’s plans to nationalize rail, mail and water companies
• A gauge of the outlook for China’s manufacturing sector dropped to the lowest level since February, underlining the weakness of an economy buffeted by weak domestic demand, shrinking profits, and the trade war with the U.S.
• Japanese industrial output rebounded more than expected in September from a drop the previous month, though factory production still fell over the third quarter
• Reserve Bank of Australia board member Ian Harper said his nation’s economy does “not need” a stronger currency — but worries that’s exactly what it could end up with if the U.S. Federal Reserve keeps easing
• President Donald Trump’s plan to ink the first installment of a trade accord with Xi Jinping next month was thrown into question Wednesday after Chile canceled an upcoming summit where the two leaders had planned to meet
• House Democrats hold a historic vote on Thursday to affirm an impeachment inquiry of President Trump that also will starkly illustrate the country’s political divisions
• Pound traders eyeing December’s snap U.K. election are more worried about Brexit champion Nigel Farage than the socialist agenda of Labour leader Jeremy Corbyn. Faced with a vote as much about Brexit as the contenders, making it more difficult to predict, Goldman Sachs Group Inc. and BlueBay Asset Management have backed away from bets on pound strength
• Hong Kong’s economy contracted sharply in the third quarter as it entered a recession, exceeding economists’ worst estimates of the damage from nearly five months of protests. Third-quarter gross domestic product retreated 3.2% from the previous three months, after a 0.4% contraction in the second quarter. That’s the worst slump since 2009

Asian equity markets traded mostly positive after the mild post-FOMC tailwinds, with participants also reflecting on a slew of blue-chip earnings and disappointing Chinese PMI data. ASX 200 (-0.4%) was among the few laggards, pressured by underperformance in its largest weighted financials sector after Big 4 lender ANZ Bank reported flat profits amid challenging conditions, while Nikkei 225 (+0.4%) just about kept afloat amid a mixed currency and with a deluge of earnings including Sony which raised its FY net forecasts. Elsewhere, KOSPI (+0.2%) was boosted by index heavyweight Samsung Electronics which surpassed its profit guidance and Apple suppliers in Taiwan saw mixed fortunes despite a strong Q4 result from the US tech giant which beat on top and bottom lines, as well as iPhone revenue but missed on iPad and Mac sales. Hang Seng (+0.9%) outperformed overnight after the HKMA lowered rates in lockstep with the Fed and Shanghai Comp. (-0.4%) was less decisive after another PBoC liquidity drain, weaker than expected Chinese Manufacturing and Non-Manufacturing PMI data, as well as some uncertainty after Chile cancelled the APEC summit next month. Finally, 10yr JGBs rallied from the open ahead of the BoJ announcement after source reports suggested that the BoJ is considering modifying its forward guidance to more clearly signal the chance of a future rate cut, although JGB prices pulled back aggressively following the BoJ announcement which was met with disappointment given that the bank’s new guidance for “short and long-term rates to stay at current or lower levels as long as needed“ didn’t provide anything ground-breaking, as the bank have previously reiterated the possibility for further negative rates.

Top Asian News:

• BOJ Deploys Words Instead of New Policy Action to Fight Slowdown
• Alibaba Is Said to Eye November Window for $10 Billion Listing
• Taiwan Bucks Asia Slowdown With Fastest GDP Growth in 5 Quarters
• Record Singapore Deposits May Show Hong Kong Funds Shift

Major European Bourses (Euro Stoxx 50 -0.6%) are mostly lower, after reports that China is doubtful about the possibility of a long-term trade deal with US President Trump and unwilling to budge regarding key structural issues; news which triggered a bout of risk off sentiment. Underperformance is being seen in the FTSE 100 (-1.07%) – weighed on by index heavy weight Royal Dutch Shell (-3.6%) after it reported disappointing earnings, in which the Co. noted risks to the completion of its share repurchase programme (Note: Shell A and B shares account for 11% of the FTSE 100). Meanwhile, the FTSE MIB (-0.1%) fares slightly better, with decent gains in Fiat Chrysler (+8.7%) on the terms of its merger with Peugeot (-12.3%) and with each to own 50% share in the merged entity. Prior to the US/China trade headlines, global equities had been holding on to yesterday’s post FOMC gains; in which the Fed cut rates by 25bps but indicated it would likely be on hold going forward. The sectors meanwhile are relatively defensive; Utilities (+0.7%), Health Care (-0.3%) and Consumer Staples (+0.1%) outperform while Energy (-2.4%) is the laggard on Shell. Prior to the risk off move, Tech (-0.7%) had been leading the pack higher, following strong earnings from strong earnings from Apple and Facebook (4.8% and 1.8% higher respectively in premarket trade). In terms of other individual movers; decent earnings saw Sanofi (-0.2%) bid at the open, albeit the Co. reversed gains amid the aforementioned US-China trade news. Conversely, weaker than expected earnings from Air France (-3.8%), Lloyds (-2.7%), BT (+0.5%) and Swiss RE (-1.9%) saw their respective shares under pressure.

Top European News:

• BNP Paribas Fixed-Income Trading Outperforms European Rivals
• Pound Investors’ Biggest Fear on Snap U.K. Election Isn’t Corbyn
• British Airways Owner Posts Earnings Drop After Pilot Strike
• Shell Warns of Weak Economic Outlook Despite Bumper Profit

In FX, the Greenback remains under pressure in the FOMC aftermath as some month end rebalancing models are negative in contrast to neutral signals flagged earlier in October, while the latest comments from China on the US trade front have been net bearish for the Buck with Beijing apparently raising doubts about the prospect of a long term accord given a reluctance to make major structural reforms and demands that Washington removes all tariffs before moving forward to Phase 2 talks. The DXY is holding just off 97.216 lows compared to 97.449 at one stage and considerably higher in knee-jerk Fed rate cut and shift to pause mode trade.

• JPY/CHF/GBP/EUR – Risk-off sentiment prompted by the aforementioned Chinese concerns and conditions regarding trade negotiations with the US and more NK missile tests has (naturally) boosted the likes of the Yen and Franc (while Gold has also benefited and reclaimed Usd1500+/oz status), with Usd/Jpy retreating sharply through the 21 DMA (108.59), 108.50 and now testing 108.25 that would expose hefty option expiries between 108.00-10 (2.5 bn) if breached. Meanwhile, Usd/Chf is hovering close to the base of a 0.9895-60 range and Sterling is muscling in, albeit with bullish UK election momentum also underpinning the Pound amidst reports that the Brexit party may pull candidates and boost Tory votes in the process. Cable is holding near 1.2950, while Eur/Gbp is having another look at support ahead of 0.8600 even though the single currency is outpacing the Dollar with Eur/Usd firm within a 1.1150.75 band.
• NZD/AUD/CAD – Somewhat contrasting fortunes down under, as the Kiwi clings to 0.6400 vs its US counterpart and stays above 1.0800 against the Aussie despite the latest China-US headlines and downbeat Chinese PMIs overnight with the aid of Westpac rolling its RBNZ ease forecast to February 2020 from next month and an improvement in the NBNZ business outlook. Conversely, Aud/Usd is losing grip of 0.6900 and Usd/Cad remains elevated between 1.3148-78 parameters following yesterday’s cautious BoC outlook and eyeing Canadian data in the form of GDP, PPI and AWE.
• EM – A steeper retreat from recent peaks by the Rand as the risk aversion noted above merely adds to weakness stoked by SA’s MTBS and investor angst that Eskom aid is not as comprehensive as anticipated or hoped. Usd/Zar has been above 5.1800, but now paring back a tad.

In commodities, crude markets have eroded earlier gains after US/China trade related risk off saw this morning’s tentative gains quickly given back. WTI Dec’ 19 futures topped out around USD 55.60/bbl and Brent Jan’ 20 at USD 60.80/bbl, before a souring of sentiment saw the contracts fall as low as USD 54.85/bbl and USD 60.05/bbl respectively. In terms of crude specific news; the 590mln bpd Keystone pipeline, which carries crude oil from Alberta, Canada to refineries in the US, was shut yesterday after a spill, with little clarity on how long the disruption will last. Separate reports alleged that TC Energy has declared a ‘force majeure’ on the pipeline. “These developments will not be welcome news for Canadian producers” notes ING “with it likely to weigh on the WCS-WTI differential”. Meanwhile, source reports last night that US plans to allow Russian, Chinese and European companies to continue non-proliferation work with Iran by renewing sanctions waivers, although the news appears to have done little to change the dial. In terms of Metals; Gold is bid on 1) a weaker buck post-FOMC, 2) weak overnight Chinese PMI data 3) jitters regarding North Korean missile tests and, most recently, 4) negative US/China trade headlines. Meanwhile Copper prices saw renewed pressure amid the overall risk sentiment coupled with the dismal China data, with the red metal now below earlier reported resistance at USD 2.660/lbs to make fresh weekly lows.

US Event Calendar

• 8:30am: PCE Deflator YoY, est. 1.4%, prior 1.4%; 8:30am: PCE Deflator MoM, est. 0.0%, prior 0.0%
• 8:30am: Personal Income, est. 0.3%, prior 0.4%
• 8:30am: Personal Spending, est. 0.3%, prior 0.1%
• 8:30am: Real Personal Spending, est. 0.2%, prior 0.1%
• 8:30am: Employment Cost Index, est. 0.7%, prior 0.6%
• 8:30am: Initial Jobless Claims, est. 215,000, prior 212,000; Continuing Claims, est. 1.68m, prior 1.68m
• 9:45am: MNI Chicago PMI, est. 48, prior 47.1

DB’s Jim Reid concludes the overnight wrap

Welcome to Hallowe’en – a day that was pretty meaningless to me until I had my first child. Since then each year I’ve come home on this day to pumpkins, witches hats, broomsticks and old bedsheets with eye holes cut out. I’m a bit nervous about tonight as trick or treaters at my house might get a nasty shock as we are half way through the process of getting a new set of gates at the top of our drive. We are at the stage where we have a massive drainage trench exposed but with no surrounding lights. So any attempt to come seeking sweets at our house tonight might end up being swallowed up by a three foot ditch.

The trick for markets last night was that the Fed offered very little to those hoping for more cuts with the treat being that the bar to hiking rates seemed to also get higher. So this was a Fed that seemingly wants to hold steady here for a long period of time. Whether the data lets them is another matter but both bonds and equities rallied once this message got across in the press conference, especially the one regarding the hurdle to future hikes.

They did cut 25bps as expected but the tone of the conference has meant that our US economists have adjusted their Fed call. They continue to expect another rate cut in December, even though the probability of this has been reduced by yesterday’s FOMC. Their outlook for the US economy anticipates a further weakening of the data, particularly related to the labour market. In addition, significant event risks remain related to trade policy and geopolitics before the December meeting. They have removed the rate cut they expected in January 2020 though. This cut was in part predicated on the Fed credibly committing to a shift to an inflation makeup strategy at that meeting. Chair Powell, however, sent a clear signal that the outcome of the Fed’s policy review is likely to be announced around the middle of next year. At that point, with growth having rebounded and inflation near target, they expect the Committee to compromise by committing to this change in inflation target by promising to keep rates lower for longer. They have therefore removed the rate hike they had built into late-2021. See their note here for more.

So whether you believe the Fed or whether you believe our economists the key take home that the market took away last night was that the Fed aren’t going to be very active over the next few years. I suspect that this view is wishful thinking but that’s the narrative for now.

The reaction in Treasuries was for 10y yields to fall -6.7bps, 4bps of which occurred after Powell answered a question about how far they were away from rate hikes. At the short end 2y yields fell -4.4bps, but 6bps from the peak in the press conference. Those moves meant the 2s10s curve flattened a couple of bps. Meanwhile the S&P closed +0.44% having been slightly lower for the first part of the press conference. US equity futures are broadly flat this morning even with earnings beats out of Apple and Facebook post the closing bell last night. They were up +1.94% and +4.46% respectively in after hours trading. Apple also projected fiscal first-quarter revenue that beat analysts’ estimates

Jumping to Asia now where following the Fed, the BoJ kept its policy settings unchanged but strengthened forward guidance. The BOJ now says that it expects short- and long-term interest rates to remain at current or lower levels as long as it is necessary to pay attention to the possibility of losing price momentum. They dropped a time frame of keeping rates extremely low until at least around spring 2020. On the review of prices that the BoJ had called for at its September meeting, the central bank said the possibility of losing momentum toward its price target had not increased any further, though it was necessary to keep closely watching the situation. Meanwhile, the BOJ revised down its CPI forecasts for 2019, 2020 and 2021 to +0.7% (vs. +1.0% previously), +1.1% (vs. +1.3%) and +1.5% (vs. +1.6%). GDP forecasts were also revised down too. Yields on 10y JGBs are down -1.4bps to -0.144%.

Also out this morning were the October PMIs in China where manufacturing PMI printed at 49.3 (vs. 49.8 expected), the lowest reading since February while the non-manufacturing PMI came in at 52.8 (vs. 53.6 expected) thereby bringing the composite PMI to 52.0 (vs. 53.1 last month). In details, the sub index of new export orders fell by -1.2pts from last month to 47.0 while the new orders sub index dipped back into contractionary territory (49.6 vs. 50.5 last month). Elsewhere, Japan’s preliminary September industrial production printed at +1.4% mom (vs. +0.4% mom expected).

Markets in Asia are largely trading higher with the Nikkei (+0.35% ), Hang Seng (+1.05% ), CSI (+0.10% ) and Kospi (+0.81%) all up. The Kospi’s performance is also being helped by the earnings beat from Samsung electronics (up +1.19%) as the company posted better-than-expected earnings and projected a gradual recovery in the memory chip market in 2020 as fifth-generation wireless technology rolls out globally. Elsewhere the US dollar index is down -0.31% and yields on 10y USTs are up +1.3bps.

In other news, Xinhua reported overnight that the top negotiators from the US and China will have a phone call tomorrow while China’s commerce ministry said that China – US trade negotiations are progressing well.

On Brexit the first national opinion poll that has come out since the election seemed a formality. Canvasing Tuesday and Wednesday the Survation results showed an 8 pc lead for the Conservatives – the same as two weeks ago for this agency. There was news last night that the Brexit Party might only contest around 20 seats and allow the Conservative Party free reign elsewhere. They had previously said they would contest all 650. We’re expected to know their plan by the end of the week. If true this would take some of tail risk out of the election and reduce the no-deal risk. Sterling has edged back above $1.292 this morning but much of that has been due to a weaker dollar after the FOMC.

Unsurprisingly there wasn’t much going on in markets prior to the Fed decision yesterday – the biggest news being the decision by Chile to cancel the APEC summit. President Trump had previously flagged this as the location for a likely signing of the preliminary trade accord with Xi but the cancelled summit presumably shouldn’t be a hurdle for that assuming they can find a new location. Indeed a spokesman for the White House said that the time frame for a deal is still the same despite the cancellation. Away from that, the slate of earnings that were released were a bit more mixed. The DOW got a lift from Johnson & Johnson while GE shares also jumped after painting a more optimistic cash flow picture for the rest of this year. Molson Coors, Yum Brands and CH Brands were among those to disappoint.

Coming back to the Fed, the committee also had the benefit of some slightly stronger than expected Q3 GDP data just prior to their decision yesterday. Indeed the +1.9% annualized reading bettered expectations for +1.6% and was down only one-tenth from Q2 as a result. Consumption was a driver (+2.9% vs. +2.6% expected) while the quarterly figure is also not far from the Fed’s second half forecast built into their September SEP projections. The one disappointing aspect of the report was capex, while elsewhere core PCE was in line at +2.2%.

Also out yesterday and as a precursor to tomorrow’s payrolls was the October ADP employment change print. The 125k reading bettered expectations for 110k however it did come about in the context of 42k of downward revisions to the September data. It’s worth noting that there was no mention of the GM strike in the press release which had been flagged as a factor potentially negatively impacting payrolls tomorrow.

The data in Europe included a +0.1% mom CPI reading in Germany which was slightly ahead of expectations for no change, and left the annual rate at +0.9% yoy. Away from that Q3 GDP was better than expected in France (+0.3% qoq vs. +0.2% expected) while the unemployment rate held steady at 5.0% in Germany. Finally confidence indicators were broadly weaker than expected for the Euro Area in October with the exception of the business climate indicator. For completeness European equity markets were little changed yesterday.

In other news, the Bank of Canada held rates steady at 1.75% yesterday however the message was interpreted as fairly dovish including references like “the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist”, as well lowering projections for 2020 and 2021. The Canadian Dollar immediately weakened following the statement release and closed down -0.55% while 10y yields were down -15.1bps.

To the day ahead, which this morning includes September retail sales data in Germany, preliminary October CPI in France and Italy, and the advance Q3 GDP reading for the Euro Area. In the US the focus will be on the September PCE report along with personal income and spending readings. The Q3 ECI, latest jobless claims data and Chicago PMI are also due. Elsewhere, the ECB’s Guindos is due to speak while earnings releases include Royal Dutch Shell, Sanofi, BNP Paribas and Kraft Heinz.

A senior National Security Council (NSC) official and John Bolton ally who resigned ahead of today’s testimony with House impeachment investigators reportedly witnessed Trump ally Gordon Sondland convey a quid pro quo arrangement whereby nearly $400 million in US military aid to Ukraine in exchange hinged upon investigations into former Vice President Joe Biden and his son Hunter.

The former official, Tim Morrison, was named during testimony earlier this month by William Taylor, Trump’s top envoy to Ukraine, according to Politico.  He was on the July 25 phone call during which President Trump requested that Ukrainian President Volodymyr Zelensky to investigate the Bidens, and is the second person who was on that call to testify in front of House Democrats.

Taylor also testified that following the call, Morrison informed him it “could have gone better,” and that Trump suggested Zelensky and his staff meet with Trump’s personal attorney Rudy Giuliani and Attorney General William Barr.

Morrison’s hawkish views align with those of Bolton and he has been described as a creature of process by some close to him.

Bolton always told those who worked for him that process was their protector and sometimes you have to listen to the person elected — advice Morrison adopted, sources said.

Morrison is a lifelong Republican described as a Reaganite and is referred to as “‘Bolton’s Bolton,’ he is really hard right,” according to one source familiar with Morrison. –CNN

According to CNN, “Morrison is expected to corroborate key elements of a top US diplomat’s [Taylor’s] account that Trump pressed for Ukraine to publicly announce investigations into former Vice President Joe Biden and his son, Hunter, using military aid the country sought to fight back against Russian aggression as leverage.”

It is unknown whether Morrison will say if there was a quid pro quo if asked by congressional investigators during today’s testimony.

But Morrison will be asked to detail what he meant when he told Taylor, according to Taylor’s testimony, that he had a “sinking feeling” after learning about a conversation between Trump and Sondland. During that conversation Trump said he was not asking for a “quid pro quo” but he still “insisted” that Zelensky “go to a microphone” to announce investigations into Biden and 2016 election interference. –CNN

According to CNN, Morrison is also expected to “paint a picture of the NSC keeping the train on the tracks and not carrying out any illegal actions.”

“The NSC process does not allow anything that isn’t legal. It just, it would never get to the President. Certainly not any process that Tim was ever a part of,” said one source close to Morrison. “A piece of paper does not get to the national security adviser without first going through the lawyers, much less to the President.”

Taylor also described a conversation in which Morrison relayed word from Sondland that Trump had told Sondland directly that Ukraine President Volodymyr Zelensky should publicly announce the investigations.

House impeachment investigators are exploring whether Trump conditioned nearly $400 million in military aid to Ukraine — and a White House visit for Zelensky — on Ukraine’s willingness to investigate former Vice President Joe Biden, as well as a debunked theory that Ukraine, not Russia, interfered in the 2016 U.S. elections.

Taylor told lawmakers that Morrison relayed concerns about Trump’s posture toward Ukraine to then-national security adviser John Bolton and to NSC lawyers. –Politico

“After more than a year of service at the National Security Council, Mr. Morrison has decided to pursue other opportunities — and has been considering doing so for some time. We wish him well,” said a senior administration official of Morrison – who had been expected to leave the NSC for some time to pursue work in the private sector. That said, the timing of his departure so close to his testimony was notable according to two people familiar with his plans.

Italy’s Fiat Chrysler and French Peugeot owner PSA agreed to join forces in a what was described a 50-50 share swap merger of equals, creating the world’s fourth-largest automaker, triggering a fresh wave of consolidation in the reeling car industry.

As first leaked earlier this week, Fiat Chrysler and PSA said they aimed to reach a binding deal to create a $50 billion company domiciled in the Netherlands, with listings in Paris, Milan and New York and with PSA’s Carlos Tavares as CEO and FCA’s John Elkann as chairman. The move comes less than five months after Fiat abandoned merger talks with PSA’s main French rival Renault and would give both companies the scale to help manage a global downturn in auto markets as well as costly investments in new technologies such as electric and self-driving vehicles.

As Reuters notes, FCA would get access to PSA’s more modern vehicle platforms, helping it to meet tough new emissions rules, while Europe-focused PSA would benefit from FCA’s profitable U.S. business.

The details of the transaction are as follows, via Bloomberg:

• Dutch parent company to have John Elkann as Chairman and Carlos Tavares as CEO; Both boards have given the mandate to their respective teams to finalize the discussions to reach a binding Memorandum of Understanding in the coming weeks;
  • Board would be composed of 11 members; five members would be nominated by FCA, and five would be nominated by PSA
• Tavares to be CEO for an initial term of five years, also be a member of the Board
• FCA would distribute to its shareholders a special dividend of EU5.5 billion
• Peugeot would distribute to its shareholders its 46% stake in Faurecia
• Approximately EU3.7 billion estimated annual run-rate synergies; no plant closures resulting from the transaction
  • Projected 80% of the synergies would be achieved after 4 years
  • Total one-time cost of achieving the synergies is estimated at EU2.8 billion
• New group’s Dutch-domiciled parent company would be listed on Euronext (Paris), the Borsa Italiana (Milan) and the New York Stock Exchange
  • Continue to maintain significant presences in current operating head-office locations in France, Italy and the U.S.

Yet for a “merger of equals”, the stocks had two distinctly different reactions, as shares of Fiat Chrysler jumped 10% Thursday after the two sides announced the deal, while Peugeot parent PSA fell by about the same amount, taking the typical acquirer’s hit.

Why? Because as Jefferies analyst Philippe Houchois said, adjusting for the differences in market value and planned dividend payments, achieving the 50-50 split would effectively see PSA paying a 32% premium to take control of FCA.
As part of the deal,

The math, as Bloomberg notes, bears it out. Fiat will pay its shareholders a 5.5 billion euro ($6.1 billion) special dividend and hand them shares in its robot-making unit Comau. PSA, meanwhile, will distribute to its investors its 46% stake in supplier Faurecia. Citi analysts said the cash payout for FCA shareholders contrasted with the Faurecia shares, worth about 2.7 billion euros at Wednesday’s close, being offered to PSA shareholders, saying the latter were “being asked to remain patient.”

As of Tuesday, PSA had a market value of 22.6 billion euros. Before it merges with Fiat, it’ll hand shareholders its almost 3 billion-euro stake in French parts maker Faurecia SE, leaving about 19.6 billion euros to be contributed to the new company.
Fiat shareholders will throw in at least 5 billion euros less. The Italian-American company had a market value of 20 billion euros as of Tuesday. But before the deal closes, the carmaker will jettison about 5.75 billion euros: Along with the dividend, it’ll give shareholders its robotics arm Comau, with an estimated value of about 250 million euros.

China’s Dongfeng Motor has a 12.2% equity stake and 19.5% voting stake in PSA, and there has been speculation it might use the tie-up to sell its holdings.

The biggest winners are of course, also the wealthiest stakeholders: of the €5.75 billion in payouts before the deal closes, Fiat’s founding Agnelli family will reap almost $1 billion in value. The family’s holding company, Exor NV, is Fiat Chrysler’s largest shareholder and will receive about €1.65 billion of the total. The family owns just over half of Exor, so its share of the windfall would be just under 900 million euros, or almost $1 billion.

It doesn’t end there: Fiat Chrysler’s chairman, Agnelli family scion John Elkann, will still have a lot of clout. He’ll be be chairman of the merged company, and Exor will be its largest shareholder with about a 14% stake.

The combination with PSA would give Fiat Chrysler access to the French group’s more modern and more flexible vehicle technologies, including the CMP modular platform, which was launched in 2019 for Peugeot’s e-208 compact city car, and donated the technology which allowed Opel to build the Corsa-e mini. The CMP platform was jointly developed by Dongfeng and PSA.

Strategy firm PA Consulting has forecast FCA faces a fine of 700 million euros ($777 million) unless it radically changes its emissions profile to sell more electric and hybrid cars.  PSA has already integrated Opel and Vauxhall, which it bought from General Motors in 2017, shifting them from nine GM platforms to just two, a step which helped Opel to return to profit after more than a decade of losses.

Finally don’t forget the bankers: FCA is being advised by Goldman Sachs and D’Angelin, while PSA is working with Morgan Stanley, Mediobanca’s Messier Maris & Associes unit and Perella.

The first domino in the next global economic crisis has fallen this morning, when Hong Kong crashed into a technical recession, the first time since the 2008/09 financial crisis. Hong Kong’s economy plunged 3.2% in 3Q19, government data showed on Thursday, exceeding economists’ lowest estimates and confirming a technical recession has begun.

Earlier this week, we reported that Hong Kong Financial Secretary Paul Chan warned after more than half a year of violent anti-government demonstrations, the end of October will likely mark the start of a recession. 

“After seeing negative growth in the second quarter, the situation continued in the third quarter, meaning our economy has entered technical recession,” Chan wrote in a blog post.

“It seems it will be extremely difficult for us to reach full-year economic growth of 0 to 1%. I would not rule out the possibility that the full-year economic growth will be negative.”

With two consecutive quarters of negative growth and no end to the protests in sight, Bloomberg has noted in a series of graphs that a full-year economic contraction is likely for 2020.

Raymond Yeung, the chief Greater China economist with Australia & New Zealand Banking Group Ltd., told Bloomberg that social chaos in the city is driving the economy into the ground. Protesters have frequently shut down popular shopping districts, something that we outlined several weeks ago, warning that the retail industry in Hong Kong is on the brink of collapse.

Yeung warned: “It’s obviously comparable to the global financial crisis. We have a very similar situation that we don’t know when it’s going to end.”

Meanwhile, tourism has plunged 37% Y/Y in 3Q19, and the trend for 4Q19 is likely not to improve. The number of tourists for the first two weeks of October was down 50% on a Y/Y basis. Rooms at the most high-end hotels, like Marco Polo Hongkong in Tsim Sha Tsui, are going for $72 per night, a 75% discount versus last year. 

Anyone who wants to travel to Hong Kong this month, departing from New York City airports, can easily get roundtrip plane tickets for 50% off because air travel to Hong Kong remains depressed. 

Local businesses are cutting back on their workforce as approximately 77% of all hotel workers have just been asked to go on leave without pay.  Iris Pang, an economist at ING,  told the Financial Times that Hong Kong’s economy would be in a full-blown recession in 2020.

The Hong Kong government has rolled out countercyclical measures to buffer the economy and avoid a flat out depression. Some of these measures include tax cuts and increases to social security, along with housing perks for first-time homebuyers. But with an economic crisis expected to deepen, the government has held back on fully deploying its tools — would likely wait for a trough in the economy before large stimulative measures are seen.

Pang, on the other hand, said, “interest rates don’t matter for this economy anymore. When there’s violence in the streets, people don’t want to go out shopping or go out for dinner.”

In a series of charts below, the great collapse of Hong Kong can be visualized: 

Mainland Chinese tourists to Hong Kong volumes are plunging. 

In a 12-month and 3-month change, Hong Kong retail sales have absolutely collapsed over the last half-year. 

Hong Kong is the first domino to fall. More emerging growth countries will slip into technical recession as a global financial crisis could arrive as soon as 2020.